ASG FINANCE LTD v. KWAN YING WAI STEVEN

HCA 8007/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8007 OF 1999

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D E C I S I O N

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1. The Plaintiff is a licensed money lender. However, it was granted an exemption under section 33B of the Money Lenders Ordinance from sections 18(1), 18(2), 19(1)(a), 22(1) and 26(2) of the Money Lender Ordinance by the Money Lenders Section of the Companies Registry. The Plaintiff has a sister company called ASG Brokerage Limited (hereinafter called "Brokerage") which is a member of the Stock Exchange of Hong Kong and which carries on business of stockbrokers in Hong Kong. Both the Plaintiff and Brokerage are wholly owned subsidiaries of Asia Securities Global Ltd. (hereinafter called "Securities")

2. The Defendant was a customer of Brokerage. By an agreement dated 10 October 1994, the Defendant opened a cash dealing account with Brokerage. Under this agreement the Defendant could trade in shares in the stock market through Brokerage and by clause 9 of this agreement the Defendant agreed to put Brokerage in funds for transactions entered into by him. It is also important to note that under clause 17 of this agreement, the Defendant charged all securities and shares which were in the possession of Brokerage as security for the payment of all monies and liabilities whether actual or contingent which were then due or at any time thereafter due by the Defendant to Brokerage or any member of Securities group. Thus the shares in the possession of Brokerage would also be security for any debt due by the Defendant to the Plaintiff.

3. On the same date of the opening of the cash dealing account and possibly also simultaneously, the Defendant also entered into a finance agreement with the Plaintiff which set out the terms applicable to the grant of financial facilities by the Plaintiff to the Defendant. Under this agreement, the Defendant also charged to the Plaintiff all securities which were then or thereafter deposited with the Plaintiff or Brokerage as security for the Defendant's liability to the Plaintiff. By a facility letter dated 21 October 1994 the Plaintiff agreed to grant credit facility to the Defendant for the purpose of financing the Defendant's purchase of securities through Brokerage up to a limit of $5 million. It was clearly provided in this facility letter that the amount of the facility could be drawn by Brokerage on the Defendant's behalf. The facility was repayable at the last day of each month or on demand. There was also a term to enable the rolling over of the loan with interest. This facility letter was also signed by the Defendant to signify his acceptance of the terms.

4. The arrangement was thus a very common arrangement for margin trading in those days. The customer was given credit facility by an associated finance company of the stockbroker and subject to the credit limit the customer would be allowed to buy shares on credit provided by the finance company. Since the broker could draw down the facility directly, this would actually mean that the loan amount would be directly transmitted to the broker. Of course when the shares purchased in the account were disposed of, the proceeds would be used to repay the loan from the finance company. The shares acquired and standing in the account of the client would stand as security for the loan. In accordance with this usual practice and arrangement, the Plaintiff lent money to enable share trading to be done in the Defendant's account with Brokerage. The Plaintiff issued statements to the Defendant from time to time showing the amounts lent by the Plaintiff for the purchase of the shares, the amounts received from the Defendant as deposit or from proceeds of disposal of shares in the account, and the amount of shares held as security for the sum outstanding. There was no dispute that the statements were received by the Defendant although the Defendant claimed that he had not paid attention to them.

5. As on 30 April 1999 the sum owed by the Defendant to the Plaintiff from the margin dealing, according to the statement so issued by the Plaintiff, amounted to $9,782,382.32 plus interest in the sum of $87,170.41. In this action, the Plaintiff claimed the outstanding principal amount and interest thereon.

6. The original Statement of Claim was very simple consisting of only 4 paragraphs claiming the balance of the amount due to the Plaintiff as on 30 April 1999. The original Defence filed was a general denial that the Defendant had borrowed any money from the Plaintiff and also sought to put the Plaintiff to prove that the Defendant was liable for the amount. The Statement of Claim was amended on 17 January 2001. In this amended pleading, the Plaintiff pleaded the arrangement between the Defendant and Brokerage and also the terms of the finance agreement between the Defendant and the Plaintiff and also the terms of the facility letter. As to the state of account between the parties, the Plaintiff started with the position as on 31 May 1997. On that day, the Defendant had a credit balance of $4,831,088.64 in his favour. The Plaintiff then pleaded that thereafter there were transactions of purchase and disposal of shares and also withdrawals and deposits of money by the Defendant in his account resulting in the net balance of principal of $9,782,382.32 due to the Plaintiff. The particulars on how this amount was built up were given. By its Amended-Defence, the Defendant admitted having signed the documentation for the opening and operation of the securities margin account. However, the Defendant alleged that save for a few transactions, the Defendant's account with the Plaintiff was operated by one Mr Peter Mou, whom the Defendant said was an employee of Brokerage. The Defendant also pleaded that since it was Mou who operated the account, any indebtedness was in fact due by Brokerage and in the alternative, the Defendant said that insofar as the Defendant was liable upon the account, the Defendant was entitled to set off the amount of profit earned by Mou and/or the Plaintiff and/or Brokerage from the account. Somehow it was alleged that the profit was held by the Plaintiff, Brokerage and/or Mou as constructive trustees for the Defendant. I must say that I am completely at a loss as to how it was alleged that the constructive trust would arise. Counsel for the Defendant had never addressed me on how any of the profit had become subject to any constructive trust, and in any case, it would appear that this contention has not been relied on in answer to the Plaintiff's present application for summary judgment before me.

7. The admission that the Defendant had given instructions to carry out certain transactions prompted the Plaintiff to ask for particulars of those transactions. On 15 July 2000, in answer to the request, the Defendant identified 7 occasions between 30 April 1997 to 9 September 1997 where the Defendant had instructed Mou to carry out purchase of shares. On 1 November 2001, the Plaintiff applied for summary judgment by summons. The delay in the application is unexplained and is surprising. However, the law is well established now that if the Plaintiff is otherwise entitled to summary judgment, the delay in the application is not a ground for not granting the application (see Hong Kong Civil Procedure 2002 para 14/2/2).

8. The application was not for judgment for the whole amount of the claim, but was only confined to a part thereof. In short, the application was in respect of the amount which would be due to the Plaintiff arising out of the 7 transactions which the Defendant by his particulars had identified as being purchase transactions to which he was responsible. In this way, the Plaintiff avoided the issue raised in the Defendant's Amended-Defence that in fact the trading in the Defendant's margin account was not his but was that of the Plaintiff's or Brokerage's or Mou's. The shares so purchased by the Defendant were all sold and the net proceeds were credited back to his account. The difference between the sum lent to the Defendant for the purchase of the shares in the 7 transactions less the amount of the net proceeds of the sale would represent the loss suffered by the Defendant in these 7 transactions for which the Defendant could not say that it was not his responsibility but was the responsibility of someone else.

9. In order that no argument could be advanced by the Defendant that an inflow of funds to the account from other transactions (whether in the form of cash deposit or from proceeds of sale of shares or stock) had expunged the claim for the loss resulting from the 7 transactions, for the purpose of the Order 14 application, the Plaintiff gave credit for all amounts of cash and stock deposits into the account between March 1996 to August 2001. Of course all the stock deposits were sold and the proceeds were treated as the inflow of funds into the account. In this way, the Plaintiff showed that there would be a net inflow of funds (from cash and stock deposits) in the sum of $4,535,310.41.

10. The amount claimed by way of summary judgment was the amount of the loss from the 7 transactions less the amount of the net inflow of funds. On this basis of calculation, initially the Plaintiff worked out the amount of the claim to be $5,126,157.71 and this was the amount of judgment sought in the summons of 1 November 2001. However, it was later found that there was an error in the figure. The error arose from an over-statement of the cost of the purchase of 1.6 million shares in Min Xin Holdings Ltd on 20 June 1997, being one of the 7 transactions admitted by the Defendant. In the Further and Better Particulars, the Defendant said that the cost for this purchase was $11,794,678.60 and initially the Plaintiff adopted this figure given by the Defendant as the cost in calculating the loss. However in fact, the actual cost for the purchase of this 1.6 million Min Xin shares was only $9,584,882.60, thus giving rise to a difference of $2,209,796. Hence, the amount of the loss from the 7 transactions should also be reduced by $2,209,796 and the amount of the claim should thus be reduced to $2,916,361.71 which was the amount that the Plaintiff eventually would like to claim before the Master on 30 May 2002.

11. The Plaintiff claimed that its solicitors had in fact explained to the Defendant by way of a schedule to a letter dated 4 May 2001 on how the Plaintiff would say that the Defendant would be liable for at least the 7 admitted transactions. The Defendant's solicitors' reply was merely that the Defendant denied the indebtedness without any positive case being put forward. It is notable that the schedule said to be annexed to the letter of 4 May 2001 was never identified in the affirmation. I was told by the Plaintiff's counsel that it was exhibit NCY-3 of the first affirmation of Ng Chung Yan. If it was so, then this schedule contained the same mistake on the cost of the purchase of the Min Xin shares on 20 June 1997.

12. Faced with the application for summary judgment only for a part of the claim and in the light of how the Plaintiff formulated the relevant part of the claim, plainly the Defendant realized that his general traverse of indebtedness and the general allegation that it was Mou who traded his account and that the trading done was not his, could not meet the Plaintiff's application which was based on only the 7 transactions admitted by him and giving him all the allowances of the cash payments and credit of proceeds. In his affirmation of 1 December 2001, for the first time, the Defendant raised the defence that Mou had failed to act on his instructions in selling the shares bought on his instructions or brought into his account by him in time or at all resulting on huge loss to his account. It was said that had Mou carried out his instructions properly, then not only would there be no debit balance due to the Plaintiff but in fact, his account would have a credit balance. Hence, the Defendant claimed that he had a defence of set off and counterclaim. Before me the Plaintiff's answer to this contention was that (a) it was not believable in the light of the circumstances of this case; and (b) in any case, in law the argument of set off could not succeed. On 30 May 2002, the Master gave the Defendant unconditional leave to defend. The Plaintiff appealed against that decision.

13. To consider whether the Defendant's contention was factually believable, it is necessary to see what contentions were raised.

14. The first matter raised was in relation to the purchase of 1.6 million shares in Min Xin (stock code 222) on 20 June 1997 at the price ranging from $5.8 to $6.02 per share. In relation to this purchase, first it was the Defendant's contention that in fact he only instructed Mou to purchase 1.5 million shares. This was of course in conflict with what was given by way of Particulars where the Defendant admitted that he had given instruction to purchase the whole of the 1.6 million Min Xin shares. The Defendant said that when he found that Mou had actually purchased 1.6 million shares, he gave immediate instruction to Mou to sell 100,000 of such shares on 20 June 1997. The sale was duly carried out. In the circumstances, it is plain that even if Mou had acted without authority in purchasing extra 100,000 shares, the Defendant had ratified the purchase, as otherwise he could not have instructed Mou to sell the shares which would not have belonged to him if Mou did not have his authority, either originally or through ratification, to buy them. At any rate, in the hearing before me, it was not contended that the purchase of these extra 100,000 shares had given rise to any loss which would give rise to any triable issue in this summary judgment application.

15. On 23 June 2001, the record showed that the Defendant had sold 500,000 Min Xin shares at the price ranging from $5.85 to $5.95. The Defendant had not raised any objection to this sale. However, the Defendant claimed that after the shares were sold on 23 June 1997, there was a debit balance of $6,061,671.44 still due to the Plaintiff. He claimed that he then tendered 500,000 shares of Guangdong Investment Ltd to the Plaintiff. The record did show that 500,000 Guangdong Investment Ltd shares were deposited with the Plaintiff on 27 June 1997 and as on that day, those shares would have a value of $5,825,000.00. The Defendant further claimed that he gave instruction to Mou to sell the Guangdong Investment shares and according to him, if Mou had sold the 500,000 Guangdong Investment shares as instructed, his indebtedness to the Plaintiff in respect of the Min Xin shares would only be $236,671.44 and not $7,478,361.90. The figures so given in the Defendant's affirmation would indicate that the Defendant was contending that he gave instruction to Mou to sell the 500,000 Guangdong Investment shares on 27 June 1997 which would generate a credit sum of $5,825,000.00. But on the other hand, it would also indicate that he did not give any instruction to Mou to dispose of his remaining 1,000,000 Min Xin shares, otherwise the contention in paragraph 14 of his affirmation of 1 December 2001 that the debit position in his account should be $236,671.44 was wholly inexplicable. It has to be pointed out that the alleged indebtedness of $7,478,361.90 set out in the schedule exhibited in NCY-3 of the affirmation of Ng Chung Yan of 1 November 2001 was wrong. This figure was arrived at based on the purchase price of $11,794,678.60 for the 1.6 million Min Xin shares. As it has been pointed out above and conceded by the Plaintiff, that figure was wrong and the total purchase price should only be $9,584,882.60. Thus, the debit balance for this Min Xin shares, on the Plaintiff's contention should only be $5,268,565.90.

16. The record in statements issued by the Plaintiff to the Defendant showed that the 500,000 Guangdong Investment shares were sold on 26 January 1998 at a total price of $1,349,336.10. Thus, if the Defendant's contention was true, the delay in the execution of his instruction would cause a loss of $4,475,663.90 plus the interest charges between 27 June 1997 and 26 January 1998 on the sum of $5,825,000.00.

17. The next complaint by the Defendant related to the purchase of the China Merchant Hai Hong Holdings Ltd. The Defendant admitted that on 9 September 1997 he gave instruction for the purchase of 200,000 China Merchant Hai Hong Holdings Ltd shares at a price of $4,709,604.20. In his affirmation of 1 December 2001, the Defendant claimed that "these shares were in fact held by Peter Mou contrary to my instructions to sell them within a short time after their purchase." From the record, these shares were in fact sold on 20 October 1997 at a price of $2,718,588.60 resulting in a loss of $1,991,015.60 for this transaction. It is important to note that the Defendant was unable to say when the shares should have been sold. All that he suggested in his affirmation was that his instruction was to sell them within a short time after their purchase. He never explained what was to be understood as being "a short time". Nor did he explain why he would like to give such instruction for the purchase of the shares if the same were to be sold "within a short time after their purchase". The statements from the Plaintiff indicated that the price of these shares had dropped by more than $5 per shares by 30 September 1997 so that there was a loss of $1,129,604.20 on the book value of these shares by the end of the month of their purchase.

18. The Defendant further said in his affirmation that by October 1997 Mou had traded on his account so badly that he came to the Defendant for help. He asked the Defendant to let him have a cheque so that he could show it to Brokerage and/or the Plaintiff in order to justify the extent of the margin facility extended to his account, and Mou assured the Defendant that the cheque would not be presented and would merely be produced to make the management feel comfortable. Accordingly he gave a cheque of $3 million post dated to 31 December 1997 to Mou. The Defendant further said that in January 1998, Mou again came to him to ask him if he could repeat the same favour by drawing another cheque for Mou to show to the management on the understanding that neither Brokerage nor the Plaintiff would present the cheque. Again the Defendant gave Mou another cheque for $5 million post dated to 30 April 1998. The statements issued by the Plaintiff did show that the cheques in the sum of $8 million were held as security and they were never presented.

19. Thus to the present claim for summary judgment, the Defendant's answer was that there was at least a triable issue on set off and counterclaim on the basis that the Defendant had given instructions to Mou to sell the Guangdong Investment shares on 27 June 1997 and to sell the China Merchant shares "within a short time after their purchase" and that his instructions were not carried out resulting in a loss to him.

20. In order to see if the Defendant's contention is viable in law, it is first necessary to consider what the position of the said Mou was. In the Re-Amended Defence and Counterclaim which was filed since the Master had given unconditional leave to defend to the Defendant and which the Defendant had affirmed to be true, the Defendant pleaded that "The Account was operated by the Plaintiff through its own agent, namely one Peter Mou ('Mou'), who was at the material time an employee of ASG Brokerage, a sister company of the Plaintiff" (see paragraph 1A(ii)). He repeated the same allegation in paragraph 5 of his affirmation of 1 December 1997. There was no explanation as to why the said Mou could be alleged by him to be the Plaintiff's agent notwithstanding that the said Mou was only an employee of Brokerage. In his affirmations, the Defendant had never made it clear as to when he gave instructions to Mou and whether he did so because Mou was an employee of Brokerage or Mou was an agent of the Plaintiff. From the nature of the instructions relied upon, it is difficult to escape from the conclusion that the instructions were given to Brokerage to effect the sale of the shares. If the instructions were given to Brokerage, even assuming that Brokerage had an obligation to carry out the instructions and had failed to do so, it would be difficult to see why any claim for damages against Brokerage could be used to set off the liability to the Plaintiff.

21. Faced with this difficulty the Defendant's counsel gave 3 answers:

(a) Even though the instructions to sell were given to Brokerage, in view of the close relationship between Brokerage and the Plaintiff in that they were sister companies and were both involved in the margin trading of the Defendant, somehow there was an equity arising which enabled the Defendant to have the benefit of the set off so that the Defendant's liability to the Plaintiff could be reduced by Brokerage's liability to the Defendant.

(b) The Guangdong Investment shares once tendered by the Defendant were in fact deposited with the Plaintiff as security, and the instruction to sell these shares was in fact given to Mou as an agent for the Plaintiff. Thus, the Plaintiff was liable to the Defendant for failing to carry out his instruction. On this argument, there must be a right to have an equitable set off between the same two parties.

(c) Even though there was no right of set off because the liability for failing to execute the instruction was that of Brokerage, the Defendant would be entitled to ask for a stay of execution of the judgment entered against him by the Plaintiff pending the trial of a counterclaim against Brokerage for failing to execute the instructions.

22. In relation to (a) the Defendant's counsel was unable to refer to me any authority to support his contention that there was such equity to enable a set off to take place between different parties. In principle, even assuming that the Plaintiff and Brokerage were under the same beneficial ownership or even assuming that the Plaintiff was a wholly own subsidiary of Brokerage or vice versa, plainly in law the Plaintiff and Brokerage were different entities. There were again clearly 2 different contracts, one between Brokerage and the Defendant in relation to the security trading, and one between the Plaintiff and the Defendant in relation to the financing of the trading. While the financing was plainly for the purpose of facilitating the margin trading of the Defendant, it did not mean that there were not 2 distinct contractual relationships. For instance, even if the Plaintiff were to decide to terminate any credit facilities to the Defendant, it did not mean that the Defendant was not entitled to trade on a cash basis under the contract between him and Brokerage. Indeed, the terms of that contract with Brokerage provided that the Defendant was to put Brokerage in funds for any trading. In the circumstances notwithstanding the fact that the Plaintiff and Brokerage were sister companies, I could not see how the Defendant could set off his liability to the Plaintiff by the amount of damages he would be entitled to claim against Brokerage for failing to carry out his instructions.

23. In relation to argument (c), no doubt the Court would have the jurisdiction to grant a stay of execution on the judgment entered against the Defendant. However, I cannot see why the Court should do this unless the Defendant is entitled to set off from the judgment sum the amount of damages which Brokerage would be held liable to him. At any rate, the position is that although his Re-Amended Defence and Counterclaim was filed after leave to defend was given to him; he had never made any counterclaim against Brokerage. The Plaintiff's counsel contended that on the scenario that it was Brokerage who was in breach of the duty to carry out his instructions, the Defendant could not have brought any counterclaim against Brokerage in this action at all because (a) there was no counterclaim against the Plaintiff for breach of the instructions; and (b) the claim against Brokerage was not related or connected to the original subject matter of the action. Thus the requirements of Order 15 Rule 3(1) were not satisfied. I am of the view that there are merits in the Plaintiff's contention on the application of Order 15 Rule 3(1). However, if in law it is possible for the Defendant to set off his liability to the Plaintiff by Brokerage's liability to him for damages, then there would be grounds for the Defendant to apply for a stay of execution of the Judgment pending the outcome of a separate action to be brought by him against Brokerage. If necessary, the Defendant could ask for the 2 actions to be heard one after the other or together. I do not think that the procedural difficulty is insurmountable.

24. In relation to argument (b), the first hurdle which the Defendant would have to overcome is that he must be able to show that there is at least a triable issue that Mou was the agent for the Plaintiff in accepting his instructions. I have already pointed out above that although in both the pleadings and the affirmation the Defendant had asserted that Mou was the Plaintiff's agent, it is difficult to see how that agency relationship could arise as it was never contended that Mou was an employee or a director or officer of the Plaintiff. Of course on the Plaintiff's side, it was said that Mou was a consultant of Securities, which was the holding company of the Plaintiff. However in either case, whether Mou was an employee of Brokerage or a consultant of the Plaintiff's parent company, it did not follow that he would have authority to act as agent for the Plaintiff. Thus, the Defendant's assertion that Mou was an agent of the Plaintiff was merely a bald assertion.

25. Even assuming that Mou was indeed an agent of the Plaintiff, it did not follow that when instructions to sell were given to him, he would have received it as agent for the Plaintiff. As I have pointed out, the nature of the instruction, being one to sell shares was likely to have been given to Mou in his capacity as being an employee of Brokerage.

26. Even assuming that the instructions were given to and received by Mou as an agent for the Plaintiff, still the Defendant would have to show that there was an obligation on the part of the Plaintiff to execute his instructions. The relationship between the Plaintiff and the Defendant was that of debtor and creditor. The shares were held by the Plaintiff as security for the Defendant's indebtedness. There was nothing in the agreement between the Plaintiff and the Defendant to show that the Plaintiff must follow the instructions of the Defendant in relation to the disposal of any shares held as security. Nor could there be any such implied obligation on the part of any security holder to follow the instructions of the debtor to realize the security to reduce the amount of the debt. The general position is that a mortgagee has the right to choose when to realize his security when the debtor is in default although when he does exercise his power of sale, he is obliged to obtain the best price reasonably obtainable (see Fisher & Lightwood's Law on Mortgages 11th ed paragraphs 20.22 & 20.23). Certainly the Defendant's counsel had not pointed out to me any contractual provisions or legal duties on the part of the Plaintiff to follow the Defendant's instructions to sell the security.

27. In the circumstances, it is difficult to see how the Defendant could have a counterclaim against the Plaintiff for failing to sell the Guangdong Investment shares or the China Merchant shares. Of course in the Re-Amended Defence & Counterclaim, the Defendant also made a counterclaim for an account for profit as pleaded in paragraph 3A of the pleading. However, the Defendant's counsel had not relied on this counterclaim in his argument and in my view rightly so. This is because the account for profit under paragraph 3A was predicated on the transactions in the Defendant's account (other than the 7 admitted ones) which were all authorized transactions. If the Defendant said that those transactions had nothing to do with him and he was not liable for them, he would not be entitled to ask the Plaintiff to account for the profit (if any) derived from those transactions. Any account for profit could only be predicated on the Defendant's having authorized the transactions or had ratified the same.

28. Accordingly, I am of the view that the Defendant's counterclaim against the Plaintiff for failing to implement his instructions is not viable in law and therefore the Plaintiff is entitled to summary judgment as claimed.

29. In any event, I also agree with the Plaintiff's counsel's submission that the Defendant's allegation that he had given instructions to sell the Guangdong Investment shares on 27 June 1997 and to sell the China Merchant shares within a short time for their purchase is unbelievable.

30. The Defendant did not dispute that the Plaintiff's statements were regularly sent and received by him. Each of the statements contained the following statement: "In case of error or omission in the statement please notify our company within 7 days from above date. Otherwise this account shall be considered as correct." The Defendant gave no explanation for his not pointing out any mistake on the Plaintiff's statements until his last affirmation filed on 25 November 2002 after the hearing before the Master. In paragraph 9 of this affirmation, the Defendant said:

"9. Moreover, and without prejudice to paragraph 8 above, should the Plaintiff assert that inference are to be drawn against me because I did not respond to various items of correspondence which the Plaintiff addressed to me, I would point out that:

(i) The correspondence is self-serving and not necessarily accurate.

(ii) At the time in question, I was in active dialogue with the Plaintiff, mainly through Mr Peter Mou, from whom I understood that the views of its management and was intended for show only. (Similarly, he told me on numerous occasions while the account was active that I ought not to be concerned with the printed account statements since he would personally report directly to me from time to time.) Until the Plaintiff resorted to this litigation, I believed and relied upon what Mr Peter Mou had told me and saw no reason not to.

(iii) Because of this, I did not open any of the correspondence (or the printed account statements) until asked to do so much later, for the purposes of this litigation, by my solicitors. Indeed, a great deal of this material still remained unopened and can be produced to this Court in that state, should the Court so wish."

31. The correspondence spoken of were those referred to in paragraph 8 of the affirmation, which were the 2 letters of 22 January 1999 and 12 April 1999. However, I found it unbelievable that because of his being told by Mou that he ought not to be concerned with the printed account statements because Mou would personally report to him from time to time, the Defendant would be justified or would in fact not even bother to open the account statements when the same were sent to him at the time when the Defendant's account was active. The 7 transactions which the Plaintiff admitted as having been authorized by him took place between 30 April 1997 to 9 September 1997 when he authorized the purchase of the 200,000 China Merchant shares. He alleged that he gave instruction to sell the 500,000 Guangdong Investment shares on 27 June 1997. It is extremely unlikely that during at least this period he did not care to open and read the Plaintiff's statements to find out the state of his authorized investments.

32. Assuming that during this period, he would simply rely on the reporting made by Mou, it is to be noted that he never alleged that Mou had falsely reported to him that the 500,000 Guangdong Investment shares had been sold as instructed or that the 200,000 China Merchant shares were sold within a short time of the purchase. Hence, if indeed he had ever given any instructions as he now alleged, it was very surprising that he would not have realized that the same had not been carried out. Yet he never said in any of his affirmations that he had made any complaint to either Mou or later on to the Plaintiff of the failure to carry out his instructions until his affirmation of 1 December 2001. Further, his allegation that he had given instruction to sell the 500,000 Guangdong Investment shares on 27 June 1997 and yet the Plaintiff or Brokerage did not carry it out, was inherently improbable and unbelievable in the light of all the circumstances in this case. There could be no difficulty in obeying his instructions at the time. After all, in the sale of the shares, Brokerage would earn commission and the proceeds would be repaid to the Plaintiff to reduce the indebtedness. Even if it was to be assumed that Mou forgot to carry out the instruction on 27 June 1997, the Defendant must realize that the shares were not sold because the Defendant could not have received any report that they were sold. In this scenario, there was absolutely no reason for the Defendant not to raise the matter immediately with Mou if he did not receive any report of the sale of the shares as per his instruction within say one or two trading days after 27 June 1997. In this respect, it is also notable that according to the Defendant, he fully realized that after the sale of 500,000 Min Xin shares on 23 June 1997, there was still a debit balance of $6,061,671.44 in relation to this Min Xin shares transaction. According to him, this was the reason for his transferring the 500,000 Guangdong Investment shares to the Plaintiff with the instruction to sell the same. If his allegation was true then there was all the more reason for him to make positive enquiry as to the status of the Guangdong Investment shares, whether they were sold and if so at what price. However, from his affirmations, he said absolutely nothing on having made any enquiries, and it would be illogical for him not to be concerned enough to open and read the Plaintiff's statements to him to find out the position of the investment which he admitted that he authorized.

33. Likewise in relation to the 200,000 China Merchant shares, it was unbelievable that he did not follow up the same with Mou or someone from the Plaintiff or from Brokerage when he did not receive any report from Mou that the same was sold after he told Mou to sell the same "within a short time after their purchase". This would be especially so since he made no complaint that Mou had falsely told him that the same was sold.

34. Again according to him, in October 1997 he was asked to produce a post dated cheque of $3 million so that Mou could show it to Brokerage or the Plaintiff in order to justify the extent of the margin facility extended to his margin account. If this allegation is true, it would be more than surprising that the Defendant would not try to verify from the statements or even from the Plaintiff directly as to the extent of the margin facility that was supposed to have been extended to him up to then and how the same was incurred. It would again be more than surprising that the Defendant would not have discovered that in fact even for the transactions which were his (and not Mou's) order to sell shares had not been executed and he would allow those orders to remain unexecuted.

35. In his last affirmation of 25 November 2002, the Defendant alleged that in a meeting in late 1998 with Vincent Ku and Mou of the Plaintiff and/or Brokerage, he made it quite clear that he did not accept responsibility for the unauthorized transactions that Mou had carried out while he was prepared to answer for those transactions he had authorized. He said that by then he realized that there was no hope that any one else would be prepared to make good the deficit position booked to his account. He said that in that meeting he was not happy with the fact that his instructions in June and September 1997 to sell the Guangdong Investment and China Merchant shares were not carried out. However, it is important to note he never said that he had ever raised this matter in the meeting. This is surprising. Even though he might not be able to there and then quantify his loss in the meeting, there was really no reason for him not to have it raised. After all, as it was pointed out, the failure to sell the Guangdong Investment shares on 27 June 1997 had alone caused him over $4 million loss. In fact, I found it quite unbelievable bearing in mind that he had been asked to make payment since at least October 1997 that even up to late 1998, he had not taken steps to quantify what was supposed to be his damages arising out of the failure to sell the Guangdong Investment shares in June 1997. In this respect, as those shares were in fact sold in January 1998 the Defendant must have been able to find out that the difference between selling the shares on 27 June 1997 and 26 January 1998 had caused him a loss of $4,475,663.90. In the circumstances it is even more surprising that after the meeting in late 1998, not only did the Defendant not assert his claim for $4,475,663.90, he even made payments of $500,000 on 29 October 1998, $1 million on 8 February 1999 and $300,000 on 7 April 1999.

36. Furthermore, since 17 January 1998 there were a number of letters written either by the Plaintiff or the Plaintiff's solicitors demanding the Defendant to make payment of the amount outstanding. Throughout the Defendant had never raised any answer that there was any breach of his instructions to sell the shares. The Defendant's conduct is completely inconsistent with the allegation he made in December 2001 when he for the first time alleged that there was a failure to execute his order resulting in a loss to him.

37. There was a side issue as to whether I could rely on 2 letters written by the Plaintiff dated 22 January 1999 and 12 April 1999. The Defendant objected to the admissibility of these letters because each of them refers to a meeting supposedly to have been held shortly before the letter was written. Each of the letters purported to record what was said or requested by the Defendant in the meeting. Though the letters were not marked "without prejudice", the Defendant contended that the letters were repeating things or discussions which were without prejudice discussions between the parties.

38. It is trite law that communications will only be protected by without prejudice privilege if they are made for the purpose of a genuine attempt to compromise a dispute between the parties. There could be no privilege if there is no genuine attempt to compromise (see Phipson on Evidence 15 ed paragraph 21-11). Thus to decide on this issue, it would be necessary to consider the purpose of the meetings spoken of in the letters.

39. On this point of privilege the Defendant had this to say in his 3rd affirmation:

"8. [after referring to the 2 letters] I am advised to and do hereby record my objection to this course by the Plaintiff, which amounts to an attempt to rely upon matters which arose in discussions intended to settle a legal dispute and are therefore as I am advised, confidential and privileged from disclosure. Without prejudice to that objection, I confirm that I did attend various meetings with the Plaintiff in and around the period in question. However it was certainly not my position at any of the meeting that I did not dispute indebtedness upon the account. Instead I made it plain at these meetings that I disputed the claim and that I had not authorized the vast majority of the transactions in qu3stion; as, indeed, the Plaintiff's representatives well knew already. It is of course true that I did not wish to be sued by the Plaintiff, or by anyone. Whatever my view of the merits of such a claim at the time, the prospect of receiving any kind of a writ was not attractive to me. Naturally, therefore, I would have preferred to settle the case, even if this meant paying some portion of the claim notwithstanding the fact that I did not consider myself legally liable to do so. In so far as I may have asked for time I which to make such a payment, I did not do so upon either and express or implied admission that the claim was valid. Furthermore, I would point out that I had not even obtained legal representation or advice at the time. To the extent that Mr Vincent Ku's or anyone else's recollection of these matters differs from mine, I contend that they are not reliable witnesses."

40. In relation to this point, Vincent Ku of the Plaintiff said the following in his 2nd affirmation:

"5. [after referring to the letters] [The letters] accurately recorded the meetings between the Plaintiff and the defendant at the material times. These letters were never intended by the Plaintiff to be confidential or privileged from disclosure. Rather, they recorded accurately what transpired in those meetings. The only central issue for discussions at those meetings was related to a repayment schedule acceptable to the Plaintiff. I reiterate that the Defendant never disputed his indebtedness to the Plaintiff in such meetings. Further the Defendant never indicated at such meetings if he was or was not willing to make repayments but rather he always expressed that more time was required for making repayments."

41. There is thus a dispute between the parties on the purposes of the meetings. If I were to accept the Plaintiff's version, then plainly there was no genuine negotiation or discussion for a compromise at all. The Defendant merely asked for time to make payment. If on the other hand I were to accept the version given by the Defendant, then I would consider that there would be sufficient material for me to find that there was some genuine attempt to reach a compromise in the meetings and hence the communication between the parties in the meetings was privileged and such privilege could not be destroyed in a back door way by the Plaintiff's reducing the same into a letter. I must say that purely on affirmations alone, I am unable to reach any conclusion as to whose versions I should accept.

42. The Plaintiff's counsel however further argued that even if the meetings were privileged, the Defendant had waived his privilege by disclosing his version of the meetings. I do not think that this contention is right. In Langdale v Danby [1982] 1 WLR 1123, the plaintiff obtained summary judgment before a Judge for specific performance. The defendant appealed to the Court of Appeal and sought to file further evidence. The plaintiff objected to the admission of further evidence on the ground that summary judgment was a determination after hearing on merits, and hence no new evidence may be adduced in the Court of Appeal unless the rule in Ladd v Marshall [1954] 1 WLR 1489 was satisfied. While contending that the defendant should not file further evidence, the plaintiff also put in evidence to reply to the evidence sought to be adduced by the defendant. The Court of Appeal accepted the new evidence on the basis that the summary judgment was not a judgment after hearing of any cause on merits. The House of Lords held that summary judgment was a final judgment after hearing of a cause on merits and that Order 59 rule 10(2) applied so that new evidence could only be admitted on special grounds. The House of Lords held that the Court of Appeal was wrong in admitting the evidence. Counsel for the defendant however submitted that since the plaintiff had filed evidence in reply, he has waived the objection. The House of Lords held that:

"This submission was wholly devoid of substance or merit. The point was clearly taken in the Court of Appeal. It was not then suggested by counsel for Mr Danby that it was not open to be taken. Whenever the point had been taken, the Court of Appeal would clearly have considered the further evidence de bene esse before deciding on its admissibility. It was only prudent for the Langdales to answer the further evidence, in case their clearly voiced objection to its admissibility should fail" (per Lord Bridge at page 1130F).

Similarly in the present case, the Defendant clearly took the point of privilege and plainly he was also entitled as a matter of prudence to adduce his side of the story on the meetings just in case his objection to the admissibility on the meetings should fail. Moreover, in order to decide whether the meetings were privileged meetings, it is necessary to find out the purpose of the meetings and in this respect, the Defendant would also be entitled to tell me what according to him, had transpired in the meetings so as to support his contention that the meetings were for negotiation for a compromise.

43. In view of the fact that I am unable to decide whether the meetings were privileged, in line with the general practice for Order 14 application, I would proceed on the basis that the Defendant's version be assumed to be true. Thus in considering whether the Defendant had established a triable issue on set off and counterclaim on facts, I have ignored the 2 letters and the contents of the meetings referred to in the letters.

44. The Defendant laid great emphasis on the fact that after he had furnished his 2 post-dated cheques in the total sum of $8 million, the Plaintiff never cashed them, but instead continued to treat the cheques as being security for the Defendant's indebtedness in the statements of account issued to the Defendant. This remained to be the same position and the Plaintiff did not cash the cheques even after 6 months from the date of the cheques. It was contended that it would be common sense that the cheques would not be paid after 6 months from their dates and it was submitted that the fact that the Plaintiff did not present the cheques would indicate that the Defendant was telling the truth when he gave his account on the circumstances of his being asked by Mou to give him the cheques, viz. to show to the Plaintiff and/or Brokerage only and to make the management comfortable. There could of course be a number of reasons for the Plaintiff not presenting the cheques. It could be that it was known to the Plaintiff through Mou or otherwise that the Defendant in fact did not have any money in the bank account so that it would be pointless to present them. In fact, it is of interest to note that the Defendant never said that he had funds to meet the cheques when presented on maturity. Furthermore, when the Defendant was being demanded to make payment by the various letters, the Defendant never raised the point that the Plaintiff could well have just presented the cheques held as security. Of course, it could also be the case that the Defendant was telling the truth that Mou asked him for the cheques assuring him that the same would never been presented and were just for the sake of making the management of the Plaintiff to feel more comfortable with the extent of the margin facility extended to the Defendant's account. However even if this be so, it did not give any support to the Defendant's assertion that in fact he had given the 2 instructions to sell that he now relied on to support his counterclaim to enable him to resist the application for summary judgment.

45. The Defendant sought to argue that in view of how the Plaintiff pleaded his case in the Statement of Claim or Amended Statement of Claim, the Defendant could not be criticised in not raising this counterclaim for failing to carry out the 2 sale orders because the Defendant would have no opportunity to plead such counterclaim. I disagree. Although the Schedule referred to in paragraph 31 of the Amended Statement of Claim merely gave the total figures of the amount of the purchases and sales and the amounts of deposits and withdrawals in each month without any detailed break down, had the Defendant wanted to know the details of the transactions making up the total monthly figures, the Defendant was well entitled to ask for particulars. Furthermore, it was quite unthinkable that by 17 January 2000 the Defendant would still not have opened or read the statements issued by the Plaintiff to him or otherwise discovered that he would have a claim for failure to carry out his instructions. At any rate even though the Plaintiff was suing on the ultimate balance in a running account, there was no reason as to why the Defendant could not raise a counterclaim for damages due to him arising out of a breach of duty to him in relation to the transactions referred to in the running account.

46. In all the circumstances, I am of the view that the Defendant had not raised any triable issue to answer to the Plaintiff's partial claim in the sum of $2,916,361.71. I would therefore allow the Plaintiff's appeal and order that summary judgment in the sum of $2,916,361.71 be entered against the Defendant. I would also ordered that the Defendant is also to pay the Plaintiff interest on this judgment sum at the rate of 1% above the prime rate from the date of the writ to the date of the handing down of this judgment. The Defendant is to have leave to defend as to the rest.

47. As to the costs, I will only deal with the costs of the application for summary judgment here and below. In relation to the costs below, I note that originally the Plaintiff's application was for the amount of $5,126,157.71 which the Plaintiff admitted was a mistake. However, the mistake has no bearing on the Defendant's ground for resisting the Plaintiff's application. In the circumstances, I would make an order nisi that the Plaintiff is entitled to the costs here and below and I would also give a certificate for counsel both here and below.